On 6 May 2022, Republic Act No. 11765, otherwise known as the Philippine Financial Products and Services Consumer Protection Act (“FCPA”), was signed into law. The FCPA was enacted to ensure that appropriate mechanisms are in place to protect the interest of consumers of financial products and services[1] under the conditions of transparency, fair and sound market conduct[2], and fair, reasonable and effective handling of financial consumer[3] disputes.
Significant provisions of the law
Financial regulators are vested with expanded powers to implement the provisions of the FCPA
Under the FCPA, financial regulators (i.e., the Bangko Sentral ng Pilipinas (“BSP”), Securities and Exchange Commission (“SEC”), Insurance Commission (“IC”) and the Cooperative Development Authority (“CDA”)) are mandated to enforce the provisions of the FCPA on all financial service providers[4] that fall under their respective jurisdictions. To allow them to properly implement this mandate, the FCPA vests in financial regulators the following powers:
- Rulemaking powers – Financial regulators are granted the authority to formulate their own standards and rules for the application of the provisions of the FCPA to the specific financial products or services within their respective jurisdictions.
- Market conduct surveillance and examination – For purposes of ascertaining whether the provisions of the FCPA are complied with, financial regulators may conduct surveillance and examination on financial service providers provided consistent with their respective risk-based supervision policies.
- Market monitoring – Financial regulators have the power to require financial service providers to submit reports or documents for purposes of market monitoring.
- Enforcement powers – In case of non-compliance with the FCPA, financial regulators may exercise the specific enforcement powers granted to it under the FCPA, which include the power to i) restrict the ability of the supervised financial service provider to continue collecting unreasonable interests, fees or chargers; ii) disqualify and/or suspend directors, trustees, officers or employees of the supervised financial service providers; iii) impose fines, suspension or penalties; iv) issue a cease and desist order; and v) suspend operations in relation to a particular financial product or service.
- Adjudication powers – Financial regulators shall have the authority to adjudicate all actions as provided under existing laws. The decision of financial regulators in an adjudication shall be final and executory and cannot be restrained or set aside by a court, except in pursuance of a petition for certiorari on the ground of grave abuse of discretion or lack or in excess of jurisdiction.
Financial service providers are charged with duties and responsibilities under the FCPA
To ensure that the interest of financial consumers are also protected from the level of the providers, financial service providers are charged with multiple duties and responsibilities. The salient duties and responsibilities of financial service providers include the following:
- Oversight by Board of Directors and senior management – The Board of Directors and senior management staff of financial service providers are required to ensure conformity with the FCPA. Additionally, they must provide the means by which they shall identity, measure, monitor, control and manage consumer protection risks inherent in their operations.
- Adoption of a clear cooling-off policy – Under the FCPA, in case necessary, financial service providers have the duty to adopt a clear cooling-off policy where financial consumers are to be given the opportunity, during the cooling-off period, to cancel the agreement for a particular financial product or service without penalty or sanction. The requirement of a cooling-off period is imposed to allow a financial consumer to consider the costs and risks of a financial product or service, free from the pressure of the sales team of the financial service provider. The period of cool-off would generally depend on the financial product or service in question, subject to the financial regulator’s appreciation of said financial product or service.
- Allowance of pre-payment of loans and other credit accommodations – Financial service providers are obliged to allow borrowers to, at any time prior to the agreement maturity date, prepay a loan or other credit transaction in whole or in part, provided that costs or fees be charged to the borrower making the prepayment.
- Adoption of disclosure and transparency principles – Financial service providers must ensure that they adopt disclosure principles in their communications and their contracts with financial consumers, including the use of clear and concise language to ensure that all information concerning the financial product or service is understood by the client.
- Fair and respectful treatment of clients – While financial service providers have the right to select their clients, they are prohibited from discriminating against clients on the basis of race, age, financial capacity, ethnicity, origin, gender, disability health condition, sexual orientation, religious affiliation or political affiliation.
- Protection of client personal data – Financial service providers must respect the privacy and protect the data of their clients in accordance with the Data Privacy Act (“DPA”).
- Establishment of a financial consumer protection assistance mechanism – All financial service providers must establish a single consumer assistance mechanism for free assistance to financial consumers on financial transactions concerns.
Conclusion
During the Senate deliberation for the FCPA, former BSP Governor Benjamin Diokno reported that the BSP Consumer Assistance Mechanism received 42,456 consumer complaints from 2020 to 2021 while the IC received 2,992.[5] Given these figures, the passage of the FCPA could not have come at a better time. The measures and mechanisms set in place by the FCPA strengthening existing consumer protection regulations specifically in relation to financial products and services would work well to reinforce confidence in the financial market and foster stability of the Philippine financial system.
If you have any questions or require any additional information, please contact Felix Sy and Dane M. Estepa of Insights Philippines Legal Advisors (a member of ZICO Law).
For further information, please contact:
Felix Sy, Partner, Zico Law
felix.sy.@zicolaw.com
This alert is for general information only and is not a substitute for legal advice.
[1] Financial product or service refers to financial products or services which are developed or marketed by a financial service provider which may include, but not limited to, savings, deposits, credit, insurance, pre-need and health maintenance organisation (“HMO”) products, securities, investments, payments, remittances and other similar products and services. It includes digital financial products or services which pertain to the broad range of financial services accessed and delivery through digital channels.
[2] Market conduct refers to the manner by which a financial service provider designs and delivers its financial products or services and manages its relationship with its clients and the public.
[3] Financial consumer refers to a person or entity, or their duly appointed representative, who is a purchaser, lessee, recipient, or prospective purchaser, lessee or recipient of financial products or services.
[4] Financial service providers refer to persons, natural or juridical, that provide financial products or services that are under the jurisdiction of the financial regulators as defined under the Philippine Financial Products and Services Consumer Protection Act.
[5] Jocelyn Montemayor, Duterte signs law on financial consumer protection, available at https://malaya.com.ph/news_business/duterte-signs-law-on-financial-consumer-protection/ (last accessed 26 July 2022).
